The Fed's Latest Moves May Fall Flat, Experts Say | WAMU 88.5 - American University Radio
Filed Under:

The Fed's Latest Moves May Fall Flat, Experts Say

Play associated audio

With the White House and Congress at loggerheads over how best to help the U.S. economy, some have pinned their hopes on the Federal Reserve to help fill the void.

Fed Chairman Ben Bernanke says the central bank still has a range of tools it can use to prop up the economy. But Greg McBride of the financial website is not holding his breath.

"The Fed can only do so much," he said. "Their most effective tools are things that they have used up already. At this point, they've got a few options left, but none of them is a surefire way to either jump-start the economy or get people to borrow or get banks to lend. There's still a demand problem. And that is not something that the Fed alone can fix."

The stock market seemed unimpressed Wednesday by the Fed's latest efforts. The Dow Jones industrial average fell more than 280 points after the Fed announced an effort to push long-term interest rates even lower.

The agency used its primary tool long ago: pushing short-term interest rates about as low as they can go. That's why you can find a car loan for less than 3 percent, for example, at lenders like the Oshkosh Community Credit Union in Wisconsin.

Loan officer Kathy Steiner says that even with all the cheap money available, people are still cautious when it comes to borrowing for a new car.

"They are not out there just buying a vehicle because they think it's pretty," she says. "They think it through: 'Do I really need this new car, or should we just get the other one fixed?' And a lot of them borrow money to get the other one fixed. If you can get a couple more years out of it for $500, you'll do it."

That same kind of caution may limit any positive impact from the Fed's latest effort to lower long-term interest rates. University of Oregon economist Mark Thoma says cheap business loans don't help much if companies are too nervous to take on additional debt.

"You can lead the firm to water, but you can't make them drink it. When you lower interest rates, that creates an incentive. But there's no guarantee that a firm is going to act on the incentive," he said. "And one of the problems the Fed faces right now is getting firms to actually bite when they lower the interest rates."

'I Have Got To Make This Last'

Meanwhile, the Fed's effort to make life easier for borrowers is creating all sorts of headaches for savers. Sally Inman and her late husband socked most of their life savings into certificates of deposit when they retired. They were counting on the interest to help cover expenses when they quit working and moved to Mesa, Ariz.

"When we first started, we were getting probably 5, 5.25 percent. It was really good," she said. "Now it's like 0.1 [percent] if we're lucky. It's just like not having any interest. You earn smidgens of $2 here or $4 there. It's just ridiculous, and it's very, very difficult."

Inman says she's not about to gamble with her money by putting it into the stock market. But the 69-year-old says she's worried about how long her savings can hold out.

"If I'm like my grandmother, she died just before her 100th birthday. Longevity is in the family. So I have got to make this last," she said. "And it scares me."

The Fed has long been faced with competing goals of keeping prices steady and fighting unemployment, so it's often caught in a kind of tug of war. Top Republicans have accused the central bank of doing too much to goose the economy at the risk of triggering inflation. Some Fed policymakers who share that view dissented from Wednesday's action. But economist Thoma doesn't believe the Fed is being overly aggressive.

"From my perspective, the Fed really hasn't put enough effort into job creation," he said. "They really ought to respond stronger to the job creation part, the unemployment part, than they have so far in this crisis."

Thoma says he's less worried about the price of groceries going up a bit than he is about people who have no paycheck to buy groceries at all.

Copyright 2011 National Public Radio. To see more, visit


'Little House,' Big Demand: Never Underestimate Laura Ingalls Wilder

Wilder's memoir reveals that she witnessed more violence than you'd ever know from her children's books. The South Dakota State Historical Society can barely keep up with demand for the autobiography.

Coffee Horror: Parody Pokes At Environmental Absurdity Of K-Cups

The market for single-serving coffee pods is dominated by Keurig's K-Cups. But they aren't recyclable, and critics say that's making a monster of an environmental mess. Meet the K-Cup Godzilla.

Insurance Choices Dwindle In Rural California As Blue Shield Pulls Back

When Blue Shield Of California stopped selling individual health policies in many zip codes in 2014, even insurance agents were surprised. Blue Shield says it dropped out to keep premiums low.

Charles Townes, Laser Inventor, Black Hole Discoverer, Dies At 99

Physicist Charles Townes died Tuesday. He was a key inventor of the laser and won the Nobel Prize for his discovery in 1964. But his career didn't end there.

Leave a Comment

Help keep the conversation civil. Please refer to our Terms of Use and Code of Conduct before posting your comments.